Hello and welcome to Real Deals on a I'm Nicola sniveling and in
this program we will be taking the status check on the position
of debt markets a year on from the first wave of covid.
Disruption and uncertainty I recently joined a group of
lenders and advisers to discuss the drivers behind the evidence
of a strong debt Market recovery and to get to grips with how
lenders are navigating competitive.
Ins to find Value and what the outlook for debt markets over
the next 12 to 18 months has the guests joining me for the
discussion were and money at Year from think cats.
Tom Cox from FRP advisory Kirsty Hutchinson from McFarland's,
Cecile, Levy from Tikki, how capital and G Neil from n for
partners? we kicked off discussion with a
look at what has characterized deal flow so far this year and
what kinds of deals are getting over the line, Kirsty,
Hutchinson explained how the focus has shifted from survival
to business, as usual within just a few months with
refinancing and amend and extend deals Ubiquiti has in a borrower
Friendly Market if we, if we sort of, look back to same time
last year, clearly, we were in a wasteland of panic and confusion
with That with people just about getting their heads above water
with some emergency waivers. Roll forward to December.
I think everybody acknowledges that it was, one of the, one of
the busiest key force in people's working memories and,
and inevitably a lot of that deal flow spilled over into
January, because people simply couldn't get everything away in
time. So, it was a, it was a cracking.
Start to the are in the sense that, you know, everybody's
glass was over, was overflowing with, with transaction activity,
and that needed to be dealt with in q1, but you A lot of amend
and extend activity but equally a lot of people taking advantage
of the frankly enormous levels of liquidity to refinance.
People are looking ahead. They might not necessarily find
themselves needing to refinance now, but this is a great time
for them to do. So particularly their
fundamentals are sound. So people are refinancing a lot
of sponsors are taking the opportunity to refinance and
recap therefore P. Advisories Tom Cox also noted
the surgeon Financing and recap activity.
But added that much that the market had bifurcated between
sectors, team covid, resilience and industry's most impacted by
lock dance. See we all seen lots of activity
very very robust valuations in very guess covid-19 sectors.
So Healthcare former business services, second able to
etcetera etcetera. And if you kind of compare that
against corruption or heavily, Impacted in a consumer facing
Industries. There's, you know, that's a lot
of activity going on there and we eventually side.
So you know, are having a number of conversations, welcome, those
kind of consensus, where frankly, there's not a chance in
hell frankly, that some people be going to be able to refinance
at least roommates 12-18 months. Wailing you have two businesses
which are lost making for a great meal from in for partners
affirm that lens as well as provides did advisory Services
added that in what had become Hot markets, Linda's, had remain
disciplined and exercised High selectivity when deciding which
assets and deals to back guarantee.
Pretty aggressive. Just now.
And I think Jane with the market feels feels hot.
It feels like there's a lot of kind of filtration going on and
and and are abused going to work Tom and Rusty stayed around.
You teams are also being selective.
I think I've certainly seen from our perspective teams, not
engage in auction processes, because they respect and
understand that Dynamics there and we'll just choose pretty
quickly and whether they want to No, you're not because they
fully understand it, unless they really can go to the top of the
pile. It will be you know, it's going
to be a whole process and will just not get not only get the
outcome, the one. So how have Linda's navigated a
hot Market that favors borrowers against?
What is still an uncertain economic backdrop.
Tikki house to see Levi and a money at here from thin cats,
sketched out their respective, approaches to deployment through
this period, first sociology, and then a money Atia, even if
you're a large This fund. Even if you have a large team,
you can't address everything. So then you need to really
direct. And I guess that maybe term
health issue to capture the bandwidth of those teams because
we need to do some trade-offs. And even if you are very willing
and organized and we have this because that's really now the
Paradox in a way private that funds have emerged on the back
of being flexible ones. Stop whatever, but being fast
and and so at some stage, you can't cover it all, so you need
to be indeed discipline. And so that's quite a natural
will say selection, this being said because you see there is
this intense competition. So, meaning that, if and when it
becomes 24 by our own standards to leverage to low pricing, we
just let it go. Doesn't matter.
Well, it's really changed over the last.
Where are we now? 18 months or so that we've been
in this situation we started out with a lot of are initially back
back in the spring and summer of last year, a lot of our activity
was refinancings, or sorry, was working capital and just working
with companies who needed that working capital and who were
viable. Valenti's but just needed the
working capital and then towards the the fall of the year and
kind of into into the winter, what we began to see is a lot
more of activities, in terms of starting to rebuild their
businesses. So rebuilding inventory new
bringing in new equipment, things of that nature to get to
get ready now, very significant. Portion of our book.
I echo in terms of m a related lot of work with with sponsors,
so that's really the bulk of activity now.
So, if you saw the book or book last year versus this year,
whereas last year, it was maybe, you know, 40 40 to 60 percent
kind of working capital and then inventory build.
Now it's 60 percent or more of em a related and Sir, related
type of activity. So I Echo everything that's
being said, even in our part of the market which again are the
smaller smaller sized businesses conversation, then move to what
lies ahead for debt markets as Government stimulus and wines
and borrowers. Have to start managing
additional debts and liabilities incurred to see them through
lockdowns. Grow Neil was cautiously
optimistic that the market would be able to steer through this
period back. You were there Pointing forward.
I don't think it's going to be a straight course.
I think. Again, we've talked about that
yesterday. I think it depends on Sake
Source and actually, you know, obviously some of the some of
the sectors that we covered in probably a lot of day appetite
throughout having problems. They all the compass move at
all. So I suppose there probably are
operating in quite leveraged positions but the markets will
remain strong in the macro drivers are sit behind the will
continue to support that. Tom Cox expects pragmatism to
Prevail with credits in troubled, sectors.
Given the breathing room to recover by lenders.
Hers who are Keen to avoid crystallizing losses.
You know, in certain sectors lenders will be encouraging
their borrowers to potentially look elsewhere for to take them
out. But will, you know, except that
frankly at the moment? That's probably not possible.
And we'll have to recut, refi and amend extend to the time
being until we have a more stable platform.
Christie, Hutchinson added that the depth and Innovation within
the lender Universe would also help to avoid a debt maturity
wall, private credit, grew out all of the retrenchment of Banks
and the absence of you know, available capital in situations
where businesses needed it. And that's it, took advantage of
that. I see no reason why you know the
the incredibly Nimble effective professionals who work in
private credit or not going to be able to take advantage of
that again. And so you know, people Setting
up a special situations fund. People are sitting up setting up
being more distress fund or even loan to our own Farms.
But but particularly sort of special sets funds in order to
take advantage of those sorts of those sorts of situations
because they are there and there are opportunities in those the
fact that financial distress has been limited, despite the scale
of disruption was a positive reflection on the maturity of
the direct lenders who have come to lead the market over the last
decade. But Have yet to face a down
cycle until last year and money at year and Cecile.
Levy elaborated on how they had handled portfolio management and
supported borrowers in the face of volatility.
So we're set up a little bit different in that we have kind
of, he will hunters and gatherers.
So we have our dedicated to looking at new transactions and
putting those transactions in the books.
And then Of the transactions in the books.
We turn it over to a group that manages them on an ongoing basis
so that they keep on top of of the transactions, they keep on
top of the borrower's, make sure that they're hitting their
covenants and and they're performing in line with
projections Etc. So we've been able because of
that. We've really been able to both
bring on new business. At the same time, give our back
book the attention that it needs and deserves the outcome is that
we We have been much much closer to companies and private Equity
sponsor because and especially during the first strict
lockdown, we had everybody was quite, you know, surprised and
lost and were bewildered. And so we had this opportunity
to have constant dialogue and that was quite nice actually,
and even we had put in place, a kind of small club and people
were helping each other and sharing best His son.
So that was quite on the contrary quite active dialogue
and maybe better than when you go, I don't know like once every
quarter meeting or once twice a year here at that was sometimes
like we were talking to those companies on the weekly basis
much. Now we are much closer to them
the session closed with each panelist sketching out their
strategic objectives and expectations for the next. 12 to
18 months and money at yet and Cecile Levy.
First followed by Graham Neal and Tom Cox with a final word
from Christy Hutchinson. So, for the rest of this year,
what we're really focused on, we've got a few government
programs that were working on still.
So we're really focused on completing those programs and
making sure that borrowers, get get to take advantage of those
programs. And then really, Starting to
build for next year because we do think, you know, the
government will will end up withdrawing its support in the
marketplace. So we, you know, we need to make
sure that we're positioned to take advantage because we are
seeing the bank's continued to withdraw from the marketplace.
And so we really are looking to take advantage of that.
You know, for next for next year, we think the activity.
The m&a activity will be around for a while or at least, you
know, for the for the next, for a lot of the rest of this year.
So, you know, we will continue to see a lot a lot go into that
space and it's really about then positioning ourselves for what
next year will bring we have known some that's a maybe
outcome and the beginning of the covid.
Impact we have generalized, what?
Of called the ESG ratchety. Now you need trench.
So that's a big topic. So that's one of the key
priority to really link them to have this extra Financial
criteria becoming more and more in the, you know, involved in
the in the setup. And so meaning that the team is
organized that way we have hides dedicated resources and so on.
So that's also the second priority from a network
perspective, we will be your fundamentally marks.
Amazing. The body for a couple of verses
in our current portfolio. We've been blessed in some
regards or some of the assets that we have and the performance
with them up and then It ultimately will be looking to
maximize value over the next four months for those assets and
expanding our business. You know what, I think we are
working on currently kind of looking at.
You know, what? That's from unexpected and
expansion, both in the traditional investment space.
And also our kind of advisory practice or where, or
fortunately, I suppose, we'll all the change, that's brought
us many opportunities, and we just got a really, really busy
team. Just nice.
So, looking forward to the next 12 months, same good forward
here already quite some of our advisory work is getting started
speeding towards World Peace, kind of more special situations
content and refinancing, some cat structures that I teach so
many effective web staying forward and to engaging with it,
engaging with those borrowers, relatively early such that you
don't get to that point where the thing, the thing from whines
itself when it has, when I had an opportunity to be he to be
restructured. So I think we will increasingly
see volume in that space. As is 2022 opens up.
But for the time being there is very much that he should go
increased opportunities, because, you know, having a
company through her company clients, through some pretty
tough and challenging times you are in a position where they
need. They will be, they will, you
know, put you in pole position and you will help them.
You know, in slightly less challenging times where they've
been in there, doing something exciting and transactional, so
We've just say very, very close to our clients and help them
through a lot of, a lot of stuff and it brings increased
opportunities of people go through because, you know,
people are looking to transact again and take advantage of
what's what's happened. So more of the same in that
sense, it's been a it's been a very strange paradoxically, you
know, incredibly tough but also in many ways certainly
professionally incredibly more rewarding.
Yeah, that we've just been through.
So Hopefully, hopefully something good will come out of
all this. For all of us.